Quality of Bureaucracy and Open-Economy Macro Policies / Chong-En Bai, Shang-Jin Wei.

Format:

Book

Author/Creator:

Bai, Chong-En.

Contributor:

National Bureau of Economic Research.

Wei, Shang-Jin.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7766.

NBER working paper series no. w7766

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Summary:

Bureaucratic quality in terms of the level of corruption varies widely across countries, and is in general slow to evolve relative to the speed with which many economic polices can be implemented such as the imposition of capital controls. In this paper, we study the possibility that quality of bureaucracy may be an important structural determinant of open-economy macro-policies, in particular, the imposition/removal of capital controls, and financial repression. We first derive a model that delivers such a result. Bureaucratic corruption translates into reduced ability by the government to collect tax revenue. Even if capital control/financial repression is otherwise inefficient, as long as the government needs the revenue for public goods provision, it would have to rely more on capital control/financial repression. For all countries for which we can obtain relevant data, we find that more corrupt countries are indeed more likely to impose capital controls, a pattern consistent with the model's prediction. The result of this paper suggests that a premature removal of capital controls mandated by outside institutions could reduce rather than enhance economic efficiency.

Notes:

Print version record

June 2000.